Qantas, Australia's national airline, has posted a severe profit warning and announced plans to axe up to 5% of its staff following a slump in business travel.

The carrier is to remove 500 management jobs and a further 1,250 staff from its 34,000-strong workforce. Alan Joyce, the Qantas chief executive, said the global downturn had hit demand for business and first-class travel, which generate a significant amount of the profits for international airlines. "Market conditions have deteriorated, especially in our international business," said Joyce. "We have no choice but to lower our profit forecast and make major changes to ensure Qantas can weather the current commercial environment."

The airline ruled out cutting routes but it will reduce capacity by 5%, which will include putting 10 aircraft up for sale and deferring orders for four A380 super-jumbo aircraft. Moody's, the credit rating agency, downgraded the airline's debt in February to Baa2, close to junk status, after warning that operating conditions were "extremely difficult and likely to worsen". However, it said today that the airline was not under threat of another downgrade unless the global and Australian economies deteriorated further.

International carriers such as British Airways and Virgin Atlantic are also cutting seats and jobs in a bid to conserve profits. Global passenger numbers dropped for the fifth successive month in January, falling 5.6%, according to the International Air Transport Association (IATA). Capacity cuts have attempted to keep pace with the fall in demand, to prevent airlines from ferrying around empty, loss-making seats. US domestic carriers have cut capacity by 10% and European carriers have reduced capacity by 3.6%.

The industry lost nearly $9bn (£6bn) last year and it is heading for a loss of $4.7bn in 2009, according to IATA. That projected deficit could worsen if airlines continue to slash business-class fares, which fell by 6% in January as premium passenger numbers fell 16.7%.

Qantas held, and then abandoned, merger talks with BA that would have created the world's first pan-continental airline. The discussions failed amid reports that Qantas had demanded a majority share of the business due to concerns over the size of BA's pension deficit.